Exelixis, Inc. (EXEL) Earnings Call Transcript & Summary

Good morning, everyone, and welcome back to the 2022 RBC Global Healthcare Conference. My name is Greg Renza, one of the senior biotechnology equity research analysts here, and we're pleased to have Exelixis with us today. And joining us from the company is the EVP and CFO, Chris Senner; as well as the SVP of Strategy, Andrew Peters. Guys, thanks for joining us this morning.

Great. Thanks for having us. And excited to be here, sir, one of the few times we've been in public, not doing this via Zoom. So it's great to see everybody.

Yes, absolutely. It's great to be in person again. And maybe, Chris, we can just kick off by having you give us on the audience a quick overview of Exelixis and what the pipeline is and what '22 has and will look like?

Yes, that would be great. So we're a commercial-stage oncology-focused biotech company. We've actually been in existence for about 27 years. We launched our first commercial product back in 2013, which is cabozantinib for medullary thyroid cancer. We got approval in 2016 for CABOMETYX, which is also cabozantinib for RCC. And then since then, we've gotten an HCC and multiple RCC indication. So if you look at last year, we did about $1.4 billion of revenue -- total revenue. We did about $1.1 billion in product revenue. We've kept the U.S. rights. Cabozantinib was discovered in the Exelixis's labs and also developed by us. We've out-licensed it to Ipsen outside of the U.S. and Japan -- and Takeda in Japan. So overall, for last year, we did almost $1.5 billion of revenue from a CABOMETYX perspective between us, Ipsen and Takeda. And then from a pipeline perspective, we've been a small molecule company, but over the last several years, we've moved into biologics, particularly on the ADC side. But we've got XB002, which is a tissue factor ADC, which we licensed in from Iconic several years ago. And then we've got several small molecules, XL114 and XL102, coming in from Oragene. We have -- one of the most important ones is XL092, which is the follow-on TKI to CABOMETYX, so extending the life cycle here from a TKI perspective. I don't know if there's anything else that we I think we -- I think we kind of covered that.

Yes. No, that's great. Certainly, I want to focus on cabo and the pipeline. But maybe before we jump into that, certainly an area of focus near term is just the ANDA trial that's expected and ongoing this week. Just some commentary, if you will, Chris, around your thoughts of that claim that MSN and Teva are making and what your positioning, and the extent to which you can comment on that will be helpful.

Yes. I mean, the trial is ongoing. It started yesterday. There's not much we really can say at this point around the MSN trial. We'll see what happens over the next several days. It's a bench trial with the judge, and then the expectation is a decision by end of the year. But this is obviously up to the judge and when he makes a decision on the MSN side of things. From a Teva perspective, Teva is actually -- is -- their end is related to 3 patents that are outside of the ones that MSN has claimed. And those patent dates are outside of the polymorph patents that we currently -- that are currently under -- challenged by MSN. So it's a formulation patent that's out to 2033 and 2 methods of treatment patent that's 2031. So they're outside of what's currently being challenged right now from an MSN perspective.

Sure. That's helpful. And certainly, you commented a bit on the timing, which is helpful to the extent that we know. But would you expect a complete resolution to come as a result of this trial? Or how would this and maybe the one set for next year on indeed another set of patents to really kind of weigh on the cabo franchise -- are there other considerations beyond this to comprehend?

Yes. I mean from a -- so there's another set of 3 patents that are Orange Book listed that got listed in the Orange Book at the end of August last year that are also polymorph patents which are under review by MSN and by the judge. There is a trial or hearing set for next May, so a year from now. And from a resolution perspective, it's hard to predict the future here. Don't want to say too much around what could or couldn't happen because there's so many different possibilities that it's hard to predict, but that's kind of our point at this time, which is to make sure we're not saying anything that's inappropriate during the -- while the trial's going on.

Understood. So let's just turn to cabo and just diving right in. On the past year then since the first-line RCC approval for cabo and Opdivo, still more growth to the franchise. So how much more can we expect in just talking about those volume drivers there for this combination regimen?

Yes. So like I said, we did about $1.1 billion in cabo revenue last year primarily from CABOMETYX. And that was on the launch -- post the launch with the 9ER data for first-line combination with Opdivo. CABOMETYX and Opdivo. We saw significant growth last year, over 40%. And what we're -- with the duration of therapy, and I think the PFS in the trial was about 18 months, and so with the duration -- that expected coming out of the trial is projected onto the commercial arena. That would be the stacking of patients as we go 15, 18 months out. So we're just -- we're 14 months or so since launch of that indication. So we continue to see that stacking. Plus, we're seeing also penetration -- further penetration in the market. We've seen market share grow from 30% market share Q1 last year to around 36% in Q1 this year as we ended Q1 this year. So we're still growing and we're also penetrating the market more. So we're excited for the continued growth of cabo. Obviously, part of that cabo story is also new indications as we look at potentially a lung indication, potentially prostate indication.

Yes. That's great. And just touching on the first line, when docs are looking at other options for first line, could you just touch -- from a high level, just that decision-making process for those that are reaching for cabo/Opdivo and those other scenarios and how that kind of plays into the dynamics?

So not being a physician, I'll tell you what we hear anecdotally. So I mean there's the totality of the data from a CABOMETYX and CABOMETYX/OPDIVO perspective, I think from -- one of the things that really plays into the doctor's decision-making is the quality of life data that we have around cabo. And that really plays into how a doctor looks at cabo in first-line treatment with cabo/Opdivo.

Yes. Just maybe to add to that, one of the things that we've talked about in prior earnings calls when describing kind of the success of the launch we've had so far is really kind of a balance of that mix between the efficacy that we've seen that Chris mentioned before but as well as kind of the safety, tolerability and, importantly, kind of quality of life. And so we think that, that kind of balance in totality is really what resonates with both patients and physicians and really kind of comes back to our core mantra here at Exelixis is helping patients live longer, better lives. And it's really about that kind of mix between efficacy, tolerability and other metrics like quality of life.

Absolutely. And the mention of expansion and new lines of growth of COSMIC-313 coming up, top line readout for July, will this be sufficient for filing? And what is the bar for the efficacy, safety of the triplet?

Yes. So data is coming in July, as you mentioned. So I don't want to front run that too much, but really kind of taking a step back, on couple of things to think about with that study. Really, the intention here was to understand what could adding cabo to ipi/nivo look like or what is adding ipi to cabo/nivo look like. So it's potentially taking kind of the best on both worlds of an IO/IO approach or an IO/TKI approach and seeing kind of what that looks like. But one of the things that taking a big step back that we continuously come back to here at Exelixis is are we shifting the standard of care and is that the potential that we can do. So we'll look at that data set again in totality when it comes in July, but it's really about does it have the potential to really right shift the standard of care for patients in looking across a whole host of metrics. And so it's not really about any one particular thing that we're going to be looking at. It's going to be about the totality of the data. And as I mentioned before, I think that kind of, mix that balance is really what resonates in the market.

Yes. And on that market, certainly, with the Opdivo/Yervoy doublet, that could be a population that could adopt this triplets provided the positive outcome here in July, also corroborated by our KOL checks. So while it is premature but how -- would growth spike? Would there be a taper just given that there could be a shift from that population? Just some commentary on maybe those dynamics at this point would be great.

Yes. Again, it's a bit early to see -- we'll wait and see what the data look like. But there are certainly areas that as we kind of thought about the triplet and reasons to start the study in general. If you look at ipi/nivo, they have about 20% progressive disease as best response. And so that's something that, theoretically, you could expect to see a TKI potentially having a benefit there, if you look at especially kind of the 9ER data. But it's going to be about all of those different kind of efficacy safety metrics in totality. A bit of a broken record on that, but it's something that we really think is important. And from our experience coming back to the launch of 9ER, that's really what resonates. So it's not one single data point.

That's great. And Chris, you mentioned the $1.1 billion. The goal of hitting $1.5 billion by year-end 2022, what are the drivers there to reach that and then to maintain or even grow that beyond 2023?

Yes. So it was really around what's the run rate as we end -- as we exit 2022 to be $1.5 billion. And we're well along that path here. We did $310 million of product revenue last quarter. And so the drivers there are pretty much all around the RCC indication and 9ER in first-line RCC. So that's what's driving. It's the stacking of the patients, which I mentioned before, that's going to really drive that, our ability to get to that number.

That's great. And maybe shifting to the pipeline. What can be gleaned from the 312 program as CONTACT 01, 02 and 03 progress for cabo and atezo cabo on the solid tumor indications?

Yes. So CONTACT-312, those was our cabo-atezo study in first-line HCC. So that study wasn't successful and I really don't think there's a whole lot of kind of apples-to-oranges comparisons you can really draw. If you look at that data set, certainly, disappointed that we didn't see kind of an improvement on PFS and overall survival, from a statistic perspective. But there's just a lot of factors when you kind of look at large Phase III pivotal studies such as disease etiology, was it primary HBV, nonviral, et cetera. And so some of those nuances and specifics are really hard to kind of draw inferences to the other 2 studies, other 3 studies, CONTACT 01, 02 and 03. As a reminder, kind of CONTACT-01, that's cabo/atezo in a post checkpoint non-small cell lung population, that's a study we're particularly excited about just because as standards of care have shifted to checkpoint inhibitors. In the frontline setting, there's really kind of significant unmet need for those patients who eventually progress in that setting. And it's -- one, we're excited to see the data upcoming, we have a presentation at ASCO that's going to go into a little bit more data from Cohort 7 and 20 from COSMIC-021 study that's kind of a large 1,000-plus 20-plus cohort Phase II study that kind of helped inform certainly not only CONTACT-01 but 02 and 03 as well.

That's great. And then maybe just shifting to XL092 and STELLAR, a little bit about the profile here, the improvement, how that pushes the needle longer term?

Yes. So as Chris mentioned, we're certainly very excited about XL092, the biggest differentiator, we think, are kind of what we were aiming to do when we were developing 92 was really address one of the kind of few potential liabilities that we see with cabo in that it has about a 99-hour half-life. So there are certain challenges that the long half life prevents in terms of kind of washout period, dose reductions, just kind of management from a patient and physician perspective. And so we went in kind of with the intent to phenocopy the kinase inhibition profile of cabo with a much more kind of user friendly, I guess, half-life. And so the STELLAR studies are kind of the initial signal-finding studies, dose-finding studies for 092 to really kind of test that hypothesis is does shorter half-life, does that potentially enable things like better tolerability, better combinability. Those are all things that kind of we're evaluating ahead of what we expect to be a fairly robust pivotal trial program. We announced the first of that 303 that's in later line colorectal cancer against regorafenib that we expect to start later this year. But it's really about asking the question what is a kind of potentially improved profile of a drug like cabo looks like not only as a monotherapy but in combination and doublets and triplets, et cetera, because we can look at the vast experience that we have had and the responses we've seen in multiple different tumor types for cabo and then apply that to 092 and really kind of gives us confidence and excitement around the potential breadth of that program.

Great. And maybe Andrew, so a word on XL102, your CDK7 inhibitor. What are the advantages there? How do we think about that profile and its competitiveness?

Yes. So CDK7, that's an interesting target. From our perspective, that there are a lot of other companies, programs going after CDK7 and, for various reasons, haven't been particularly successful. And we think kind of from a bioavailability, all of kind of the important metrics that one looks at kind of in these small molecule inhibitors, we think it kind of has the right profile to ask the question doesn't targeting CDK7 have a real clinical effect. One of the things we're excited -- why we were excited about the target is if you look at CDK4/6 resistant cell lines, there's certainly been some activity there as well as activity in combination with things like fulvestrant and abiraterone. And so those are areas that we plan to evaluate in kind of combination cohorts as well. So the way that we often describe it is we think that this is an optimized probe to ask the question, is CDK7 kind of a good target. And so we've guided the data later this year from that program. And so we'll see kind of what that profile looks like. And ultimately, given the large number of patients who have benefited from the CDK4/6 is we think that there's quite a significant opportunity there if it shows to be successful.

That's great. And maybe for Chris, it's hard not to have a conversation about -- to the external environment about external assets, and Exelixis is an approach to business development, certainly maybe an all-hands surround sound effort on the team. Perhaps you could just give your view on and where you're seeing quality out there, what the valuations look like and where your -- the appetite of Exelixis is for finding some of those differentiated programs?

So I guess from a BD perspective, it starts with -- we have $2 billion of cash on the balance sheet, right? So we have the capability to do multiple trials on -- Phase III trials on XL092 and other candidates that may push into Phase III trials. So that's a key primary goal of ours is to continue development there. But one of the other large goals we have is to do business development, right? And we've done -- you've seen in our last 3, 4 years, we've done multiple deals from small molecules like XL114 and 102 in collaboration with Oragene, or on the ADC side, we've been assembling different components of ADCs via the different business development activities we've been doing. From a market perspective, I think there's -- as we all know, we live in biotech. There's been a large reduction in valuations, the valuations necessarily wasn't the key issue before. It was the quality of the assets and conviction around the clinical side of things but also conviction around the commercial side of things. And we're trying to understand what the commercial opportunity is when we're looking at assets and what the potential could be. And we don't want to go out and spend a lot of money and start printing $15 million quarters after spending a lot of money in licensing but also in the development process. So we've been very careful so far. Andrew leads a lot of that through his corporate strategy role, and we've been looking at a lot of the assets, and we haven't seen necessarily a lot of things that we like, but there are some things that were like and we're out there in the market looking for to bring those assets in-house. From a scale perspective, we'll do anything from a BD deal to larger acquisitions. We've been profitable since 2017. We have EBITDA. We have the ability to leverage that. So beyond the $2 billion, we could go bigger. So we're looking at the full spectrum of early-stage in-licensing to more transformative transactions. I haven't settled on any of those quite yet, but we'll continue to look in the market. Andrew, I don't know if there's anything.

Yes. I mean, I think, Chris, kind of you touched on all of the kind of key aspects of our kind of external innovation strategy. It really comes down to conviction. I think, historically, given our balance sheet, given our cash flow ability to -- we can be flexible in terms of what we've been looking at, but it's really about finding the right deal for us because I always say we could do a deal tomorrow that adds a couple of bars to our pipeline chart. But if all of that is washed away in 18 months because we really didn't have the conviction that those programs are going to be around, that doesn't really help anyone. It doesn't really help patients. So we want to be good kind of stewards of our capital in terms of where we're using our funds appropriately. We have a lot of stuff in the hopper right now. We'll continue to do these smaller what we consider quite enabling deals, just coming back to our ADC strategy as an example of that. We talked about XB002. That's our kind of next-generation tissue factor targeting ADC. We really think it has some advantages relative to the approved product that's in the market. But through kind of a network of platform collaborations, we have the ability to kind of mix and match not only the antibody side of the ADC, but also kind of the linker warhead side. And we really think that's important for a space like ADCs, where we don't think a one-size-fits-all approach makes sense. And so it's kind of being selective with that targeting mechanism, the antibody bispecific, if it's necessary, the linker and then the warhead, an example of that is XB010. That's our 5T4 ADC that we've talked about that's in preclinical development. That's really an example of kind of using that mix-and-match approach to really optimize the ADC. So that's a result of kind of some of our earlier BD transactions and strategy. But as Chris mentioned, if we have the conviction either on the clinical or commercial side, we can certainly take risk and move quickly and bring that in. And frankly, I think that's one of the advantages of Exelixis is that we have the kind of proven capability from an execution perspective, if you look back at cabo development, that looks more similar to companies much larger than us, but we have the kind of speed and decision-making capability of a much smaller company. And so I think that's something that really resonates when we have kind of our external conversations in that if you have a small company sitting at the other side of the table, you can deal with Chris and I or you can deal with the whole network of bureaucracies at some of these larger companies. So that's kind of some of the dynamic differentiation.

Well, Chris, Andrew, I think that's a great place to leave it. Great to see you. Appreciate you coming, and I look forward to following the progress.

Yes. Thank you for having us.

Thank you.